Social Security retirement benefits are calculated using your highest 35 years of indexed earnings, not just your recent income.
The Social Security Administration (SSA) determines your monthly retirement benefit by first calculating your average indexed monthly earnings (AIME) over your highest 35 years of earnings. These earnings are adjusted for inflation to reflect their value over time. Then, a formula is applied to your AIME to arrive at your primary insurance amount (PIA), which is the benefit you would receive if you start claiming at your full retirement age. Finally, your benefit is adjusted based on the age you choose to begin receiving payments.
This information provides a general overview of how Social Security benefits are calculated and does not constitute financial advice.
Can I calculate my own Social Security benefits without using the SSA website?
While you can manually calculate an estimate of your Social Security benefits, it is a complex process. You would need to obtain your earnings record, index each year's earnings to the present, identify the highest 35 years, average them to get your AIME, and then apply the specific formula used by the Social Security Administration (SSA). This formula involves three 'bend points' that change annually. Using the SSA's online calculator or your personalized statement is far more accurate and simpler.